Agriculture

Cattle deaths have been mounting in the central U.S. as the recent heat wave has pushed heat indices above 120 degrees in a number of states. Faced with dry pastures, rapidly depleting hay supplies and drought stressed surface water sources, ranchers in Texas are engaging in a significant livestock sell-off, referred to in one press account as culling into “the heart of the herd.” The size of the U.S. herd is now at a record low as farmers liquidate, enticed by high beef prices and expensive feed. The situation is dire enough that the government has stepped in with low interest loans to ranchers and direct payments for farmers that lost animals due to the extreme weather. Under the Livestock Indemnity Program, cattle lost to extreme weather are reimbursed by the government at 75 percent of their value, a significant expenditure when cattle losses are counted in the thousands. Texans are already looking for ways to adapt to the drought and improve their climate resilience. Henderson County is hosting a training session on August 22 entitled “Managing the Effects of Drought for Beef Producers.”

Last week the British Government published a report on The Future of Food and Farming in which the role of a changing climate is appropriately highlighted as a major impediment to maintaining consistent and predictable food supplies for the world’s growing population. The timing of this report is excellent; food prices have been rising recently (see chart) and have caused significant hardship for some of the most globally vulnerable populations. These vulnerable populations live in some of the most politically unstable regions, and continued food inflation could exacerbate existing social and economic issues with potentially unpredictable consequences.

Unfortunately as the global climate changes and agricultural productivity shifts, these sort of price rises in basic foods are likely to become more commonplace for the economically sensitive populations in these politically unstable regions – like Southeast Asia, Northern Africa, and the Middle East. This is not to imply that recent increases in food prices were caused by climate change; it is not possible to attribute a single event such as this latest spike in food prices to the long-term trends we expect to experience from our changing climate. It is, however, instructive to identify that the sort of impacts that we expect from climate change can have serious social and political implications.

Recent work shows that several of the world's most important crops could be near climactic thresholds that will seriously impair agricultural yields.Several of these crops (like corn, rice, soybeans and wheat - the source of 75% of global calorie consumption) appear to be sensitive to increases in temperature variation, especially to the occurrence of a particularly hot day in the middle of the growing season. Increases in temperature variation and the prevalence of what are historically unusually hot days is exactly what our best models of the future climate predict. Even if global yields are able to remain fairly constant due to human adaptation to the shifting regions of agricultural productivity (e.g., northward from the U.S. Plains to Canada and Siberia), the temporary economic dislocation will certainly be difficult for today's farmers and for the people who are dependent on the food that they produce.

Other research suggests that increasing temperatures could cause major difficulties for farmers in Southeast Asia who produce a large fraction of global rice output, an important staple in the region. This research recognizes that the human body simply cannot perform the hard manual labor (like that needed to tend to rice paddies) at the temperatures climate models predict. By 2050, these temperatures are expected to be commonplace for the region – potentially resulting in a huge loss of agricultural output.

While agricultural contributions to overall GDP in the rich world may seem relatively minor, it is important to remember that GDP is only a measure of economic activity and not a measure of well-being. The well-being that food provides is not necessarily proportionate to its market price. A common example used to illustrate this point is a comparison of the price of diamonds to the price of water. Water is much less expensive but is an absolute necessity. Staple foods are similar. If the price of diamonds increases, people (in aggregate) can choose to purchase less. If the price of water or food increases however, there is little flexibility (elasticity, in economic terms) in terms of how much less people can choose to buy.

If food prices rise in the rich world, consumers will spend more of their income on food and forgo other consumption options. In developing nations this trade-off may not be possible – creating a situation where political unrest could become more likely. According to World Bank data, over 50% of the world’s population lives on less than $2 a day. Obviously for these populations, even small increases in the prices of staples can cause real difficulties since a large fraction of their income is already spent on food. Some of the regions that have the highest concentrations of the global poor are also the regions that tend to be among the most politically volatile. Though it is unlikely that food prices would directly cause conflict or instability in these regions, it is more likely that the stress caused by higher (or more volatile) food prices will worsen existing socio-economic pressures.

The resulting consequences will be difficult to predict; and by their nature will create difficulties in creating an effective adaptive response. Though it will likely never be clear which future conflicts could have been avoided in the absence of climate change, we do know that proactive policy effort taken now can reduce the eventual impact of future food price pressures.

Any climate and energy legislation will impact U.S. farmers and ranchers, and this paper examines the many legitimate concerns the agriculture sector has with such legislation. There have been a large number of economic analyses, modeling exercises, and reports published in the past several months based on an array of climate policy assumptions, and the resulting scenarios have ranged from realistic to doomsday. The results of these efforts have often been skewed or cherry-picked to support particular arguments. This brief tries to objectively assess the impacts of climate legislation and identify ways that such legislation could be shaped to provide greater opportunities for the sector. U.S. farmers have long exhibited adaptability and entrepreneurship in the face of changing circumstances, and they will be presented with a host of new markets and opportunities with the advent of climate and energy legislation.

Farmers have many reasons to be engaged participants in the climate and energy policymaking process. It is imperative that the United States take constructive action on climate and energy to maintain a leading role in the new energy economy. In shaping those actions, productive engagement by American farmers can help ensure that U.S. policy addresses their concerns and embodies their ideas. America’s farmers will be the best advocates of both the principles of a robust offset market and the creation of other market and renewable energy opportunities.

Key takeaways from this brief are:

American farmers and industry will face greenhouse gas limitations regardless of what happens in the legislative and regulatory process.Market-driven requirements from the private sector (e.g. Walmart), regulation by the U.S. Environmental Protection Agency (EPA), state or regional programs, and nuisance lawsuits will continue to require greenhouse gas (GHG) emissions to be reduced going forward. Legislation can simplify requirements on business, provide incentives and new markets for farmers, and provide mechanisms to lower the risks and costs to all sectors of the economy. In fact, without legislation, the piecemeal nature of GHG limitations will likely result in a worse outcome for farmers.

Costs to farmers from GHG legislation can be substantially mitigated by cost-containment mechanisms. Though there is potential for increased costs (namely energy and fertilizer input costs) to farmers, mechanisms potentially available in legislation can significantly minimize price volatility and cost impacts to farmers and the economy as a whole, even though not all these can be adequately reflected in economic modeling.

The opportunities for farmers to realize a net economic gain from climate legislation are significant. Offsets, biofuel and biopower, renewable power, and the ability to receive payments for multiple environmental benefits from well-managed working farmlands are among the new potential opportunities. The key to making this a reality is climate and energy policy that is shaped by the agriculture sector and farmers themselves.

Climate change and resulting weather patterns pose numerous risk management concerns for agriculture. The strong scientific evidence behind climate change should concern farmers because of the significant new risks climate change poses to farmland and the rate at which those risks are increasing.

Foreword

Eileen Claussen, President,PewCenteron Global Climate Change

This Pew Center report is the fourth in our series examining key sectors, technologies, and policy options to construct the “10-50 Solution” to climate change. The idea is that we need to tackle climate change over the next fifty years, one decade at a time. This report is also a companion paper to Agriculture and Forest Lands: U.S. Carbon Policy Strategies, being published simultaneously.

Our reports on electricity, buildings, and transportation described the options available now and in the future for reducing greenhouse gas emissions from those sectors. Agriculture may be less important than those other sectors in terms of its overall contribution to U.S. greenhouse gas emissions, but it has an important role to play within a strategy to address climate change. Agriculture is important not only because of the potential to reduce its own emissions, but because of its potential to reduce net emissions from other sectors. Agriculture can take carbon dioxide, the major greenhouse gas, out of the atmosphere and store it as carbon in plants and soils. Agriculture can also produce energy from biomass that can displace fossil fuels, the major contributor to greenhouse gas emissions.

Looking at options available now and in the future, this report yields the following insights for agriculture’s potential role in greenhouse gas mitigation:

• If farmers widely adopt the best management techniques to store carbon, and undertake cost-effective reductions in nitrous oxide and methane, aggregate U.S. greenhouse gas emissions could be reduced by 5 to 14 percent.

• With technological advances, biofuels could displace a significant fraction of fossil fuels and thereby reduce current U.S. GHG emissions by 9 to 24 percent. Using biomass to produce transportation fuels could also significantly reduce our reliance on imported petroleum.

• Further research is needed to bring down the costs of biofuels and, particularly if agriculture is to participate in a GHG cap-and-trade system, to better assess the impacts of practice changes.

• The level of reductions achieved will strongly depend on the policies adopted. Policies are needed to make it profitable for farmers to adopt climate-friendly practices, and to support needed research.

The authors and Pew Center would like to thank John Bennett, Henry Janzen, Marie Walsh, John Martin, and David Zilberman for their review of and advice on a previous draft of this report.

Executive Summary

The impact of human activities on the atmosphere and the accompanying risks of long-term global climate change are by now familiar topics to many people. Although most of the increase in greenhouse gas (GHG) concentrations is due to carbon dioxide (CO2) emissions from fossil fuels, globally about one-third of the total human-induced warming effect due to GHGs comes from agriculture and land-use change. U.S. agricultural emissions account for approximately 8 percent of total U.S. GHG emissions when weighted by their relative contribution to global warming. The agricultural sector has the potential not only to reduce these emissions but also to significantly reduce net U.S. GHG emissions from other sectors. The sector’s contribution to achieving GHG reduction goals will depend on economics as well as available technology and the biological and physical capacity of soils to sequester carbon. The level of reductions achieved will, consequently, strongly depend on the policies adopted. In particular, policies are needed to provide incentives that make it profitable for farmers to adopt GHG-mitigation practices and to support needed research.

The agricultural sector can reduce its own emissions, offset emissions from other sectors by removing CO2 from the atmosphere (via photosynthesis) and storing the carbon in soils, and reduce emissions in other sectors by displacing fossil fuels with biofuels. Through adoption of agricultural best management practices, U.S. farmers can reduce emissions of nitrous oxide from agricultural soils, methane from livestock production and manure, and CO2 from on-farm energy use. Improved management practices can also increase the uptake and storage of carbon in plants and soil. Every tonne of carbon added to, and stored in, plants or soils removes 3.6 tonnes of CO2 from the atmosphere. Furthermore, biomass from the agricultural sector can be used to produce biofuels, which can substitute for a portion of the fossil fuels currently used for energy.

Carbon stocks in agricultural soils are currently increasing by 12 million metric tonnes (MMT) of carbon annually. If farmers widely adopt the best management techniques now available, an estimated 70 to 220 MMT of carbon could be stored in U.S. agricultural soils annually. Together with attainable nitrous oxide and methane reductions, these mitigation options represent 5 to 14 percent of total U.S. GHG emissions. The relevant management technologies and practices can be deployed quickly and at costs that are low relative to many other GHG-reduction options. To achieve maximum results, however, policies must be put in place to promote, and make attractive to farmers, practices that increase soil carbon and efficiently use fertilizers, pesticides, irrigation, and animal feeds. It is also important to ensure funding to improve the measurement and assessment methods for agricultural GHG emissions and reductions, including expansion of the U.S. Department of Agriculture’s National Resource Inventory. In particular, this inventory needs to include a network of permanent sites where key management activities and soil attributes are monitored over time. Such sites would provide information vital to helping farmers select the most promising management practices in specific locations.

Profitability of management practices varies widely by region, as does the amount of carbon storage attainable. Initial national-level studies suggest that, with moderate incentives (up to $50/tonne of carbon, or $13 per tonne of CO2), up to 70 MMT of carbon per year might be stored on agricultural lands and up to 270 MMT of carbon per year might be stored through converting agricultural land to forests. Mitigation options based on storage of carbon in soils would predominate in the Midwest and Great Plains regions; whereas in the Southeast, agricultural land would tend to be converted to forestland. Information on the costs and supply of GHG reductions from reducing nitrous oxide and methane emissions are very limited, and more studies in these areas are needed.

Agriculture can also reduce GHG emissions by providing biofuels—fuels derived from biomass sources such as corn, soybeans, crop residues, trees, and grasses. Substitution of biofuels for fossil fuels has the potential to reduce U.S. GHG emissions significantly and to provide a major portion of transportation fuels. The contribution of biofuels to GHG reductions will be highly dependent on policies, fossil fuel prices, the specific fossil fuels replaced, the technologies used to convert biomass into energy, and per acre yields of energy crops. In a “best-case” scenario, where energy crops are produced on 15 percent of current U.S. agricultural land at four-times current yields, bioenergy could supply a total of 20 exajoules (EJ)—almost one-fifth of the total U.S. year-2004 demand for energy. This corresponds to a 14 to 24 percent reduction of year-2004 U.S. GHG emissions, depending on how the biomass is used. If advanced conversion technologies are not widely deployed, or if yield gains are more modest, GHG reductions would be on the order of 9 to 20 percent. For biofuels to reach their full potential in reducing GHG emissions, long-term, greatly enhanced support for fundamental research is needed.

Application of best management practices in agriculture and use of biofuels for GHG mitigation can have substantial ­co-benefits. Increasing the organic matter content of soils (which accompanies soil carbon storage) improves soil quality and fertility, increases water retention, and reduces erosion. More efficient use of nitrogen can reduce nutrient runoff and improve water quality in both surface and ground waters. Similarly, improving manure management to reduce methane and nitrous oxide emissions is beneficial to water and air quality and reduces odors. Biofuel use, particularly substituting energy crops for imported petroleum for transportation, has important energy security benefits. However, as biofuel use expands, it will be important to ensure that biomass is produced responsibly, taking both environmental and socio-economic impacts into consideration.

Although challenges remain, agriculture has much to offer in helping to reduce net GHG emissions to the atmosphere, while at the same time improving the environment and the sustainability of the agricultural sector. Further research and development will result in improved assessments of GHG contributions from agriculture, increases in agriculture’s contribution to renewable energy for the nation, better ways to manage lands, and design of more efficient policies. Government policy plays an important role in making best management practices and biofuel production economically attractive, and farmers will adopt best management practices for GHG reduction only if they seem profitable. Perceived risks and availability of information and capital play important roles in perceptions of profitability. Thus, risk reduction, availability of information, and access to capital are some of the key issues that must be addressed through policies. With the right policy framework, U.S. farmers will be important partners in efforts to reduce GHG emissions while reaping multiple co-benefits.

Conclusions

Farmers’ decisions about whether to adopt new management practices and whether to grow energy crops will ultimately determine the level of success of any agricultural sector GHG mitigation strategy. Farmers’ decisions are motivated first and foremost by what they perceive to be most profitable. Thus, mitigation practices must be economically attractive to farmers. If farmers can be persuaded to adopt desired practices, the impacts on GHG emissions could be significant. It is technically feasible that 70 to 220 million metric tons (MMT) of carbon could be added to U.S. agricultural soils annually over two to three decades. This would remove 260 to 810 MMT of carbon dioxide (CO2) from the atmosphere annually, offsetting 4 to 11 percent of current U.S. GHG emissions. Economic potential to store carbon varies substantially by region, and current studies suggest that at prices of $50 per tonne of carbon ($13 per tonne CO2), soil carbon increases would be limited to 70 MMT per year. If an aggressive research and development (R&D) program succeeds in substantially improving per-acre yields of energy crops and reducing costs of conversion technologies, biomass from agricultural sources could supply up to 19 percent of total current U.S. energy consumption. This would yield GHG savings on the order of 180 to 470 MMT of carbon, which is equivalent to reducing CO2 emissions by 670 to 1,710 MMT CO2 per year (by substituting for fossil fuels) or 9 to 24 percent of total U.S. year-2004 GHG emissions.

Overall, studies so far indicate that agriculture is likely to be a competitive supplier of emission reductions if and when farmers are offered suitable payments. Among agricultural mitigation options, soil carbon sequestration will likely be most significant for lower carbon prices (less than $50 per tonne of carbon or $13 per tonne CO2). At higher prices, afforestation and biofuel options become increasingly more competitive.

Agricultural activities have a broad and multi-faceted impact on all three of the main GHGs—carbon dioxide, methane, and nitrous oxide—and policies designed to mitigate GHGs must consider impacts on all three GHGs. Globally, land use (including agriculture) accounts for about one-third of all GHG emissions due to human activities. In the United States the proportional contribution is smaller, about 8 percent of net U.S. GHG emissions. A variety of agricultural sources contribute to these emissions, including fossil fuel consumption in agricultural production; oxidation of soil organic matter and attendant CO2 releases; nitrous oxide emissions from nitrogen fertilizer, manure, and plant residues; and methane emissions from ruminant animals, animal wastes, and flooded rice.

However, agriculture as a sector is unique in that it can function as a sink for both CO2 and methane, helping to reduce their concentrations in the atmosphere. In addition, agricultural production of biofuels can provide a substitute for some of the fossil fuel currently used for energy. Thus, agricultural mitigation of GHGs includes utilization of agriculture’s sink capacity, reduction of agricultural emissions, and bioenergy production. Utilization of agriculture’s sink capacity is primarily accomplished through increasing soil carbon stocks. Soil carbon increases, which are typically in the 0.1 to 1 tonnes per hectare per year range, could be achieved through adoption of practices such as:

• Reducing the frequency and intensity of soil tillage;• Including more hay crops in annual rotations;• Production of high-residue-yielding crops and reduced fallow periods;• Improved pasture and rangeland management; and• Conservation set-asides and restoration of degraded lands.

Although soil emissions of nitrous oxide constitute the largest GHG emissions from U.S. agriculture in terms of global warming potential, both measuring emissions and achieving large reductions will be challenging. On average, nitrous oxide emissions are roughly proportional to the amount of nitrogen added to soils, through nitrogen fertilizer, manure, and nitrogen-fixing legume crops. Since nitrogen fertilizer use is an important component of modern, high-yield agriculture, more efficient use of nitrogen inputs is the key to reduction of nitrous oxide emissions through:

• Use of soil testing to determine fertilizer requirements;• Better timing and placement of fertilizer; and• Use of nitrification inhibitors and controlled-release fertilizer.

Agricultural methane emissions in the United States occur largely from livestock production through enteric fermentation and during manure storage. Methane capture and use to produce energy is an almost ideal way to address emissions from manure, as it reduces methane emissions, reduces GHG emissions from fossil fuels by providing a substitute energy source, and also provides air and water quality benefits. Strategies to address emissions from enteric fermentation include: improving animal health and genetics, feed additives, and more productive grazing systems.

Storing carbon in soils, reducing nitrous oxide and methane emissions, and producing energy from animal wastes all are potential sources of income or cost reductions for farmers. Relatively few studies of the economic feasibility of agricultural soil carbon sequestration have been done to date, and studies of the economics of nitrous oxide and methane reductions are even more limited. Initial conclusions from studies of the profitability of practices that sequester carbon include:

• Geographic differences in the technical potential and cost of carbon sequestration are substantial;

• Cost considerations are likely to limit agricultural mitigation to levels well below those suggested by technical potential; and

• Strategies based on contracts that pay per tonne of carbon stored or that take into account geographic variation in environmental and economic conditions are more economically efficient (less costly) than contracts based on average conditions.

In addition to profitability strictly defined, several other factors are likely to affect farmers’ willingness to participate in mitigation programs:

• Risk, particularly given the likelihood of long-term contracts for carbon sequestration and the high likelihood of changes in economic and technological conditions that can result in unforeseen costs;

• Financial constraints and access to credit when adopting new practices;

• Program implementation costs, including contract and transaction costs; and

• Sociological factors, such as age and education level of farmers, farm size, and access to information.

Production of biomass energy could provide a significant opportunity for agriculture to contribute to GHG mitigation. The overall impact of agricultural biomass on GHG mitigation depends on (1) how much energy can be produced from biomass, and (2) the net (life cycle) GHG impact of biomass use for energy. Biomass is particularly well-suited to providing liquid fuel substitutes for petroleum. However, further development of advanced technologies for conversion of biomass into transportation fuels is needed to make biomass more cost-competitive with petroleum.

Current U.S. agricultural bioenegy products for transportation fuels include ethanol made from corn grain, and biodiesel. Although the efficiency of grain-based ethanol production has improved over time, fossil energy use in its production is still high (three units of fossil energy required to produce four units of ethanol energy), limiting its value as a GHG offset. Moreover, there is likely to be an upper limit on the amount of corn-grain ethanol that can be produced economically, currently estimated at 10 billion gallons per year, less than one percent of current energy demand. Biodiesel, made from oil seed crops (e.g., soybean, sunflower) is more energy efficient—about 1 unit of fossil energy to produce 3 units of biodiesel energy, but biodiesel from oil seed crops is currently 50 to 90 percent more expensive than conventional diesel.

Responsible use of agricultural residues such as corn stover or wheat straw for biofuel production could supply 2 to 6 percent of current total U.S. energy demand or 7 to 24 percent of total U.S. petroleum energy demand in the on-road transportation sector. Addressing sustainability issues (soil conservation) is important in determining the amount of residues that could be utilized. Production of energy crops such as switchgrass at current yield rates could displace perhaps an additional 3 percent of current energy supply while utilizing about 10 percent of the total U.S. agricultural area. Improvements in grass genetics could potentially boost this amount to 6 to 12 percent of current energy supply, using up to 15 percent of prime cropland. Potential bioenergy supply from corn, animal manure, CRP lands, agricultural residues, and energy crops grown on prime agricultural land could represent almost one-fifth of total year-2004 U.S. energy demand and more than 80 percent of current U.S. petroleum energy demand in the on-road transportation sector.

Designing and implementing effective agricultural mitigation strategies depends on cost-effective and reliable methods to estimate GHG fluxes and carbon stock changes. Collecting information on management activities such as tillage practices, fertilizer use, and grazing practices at some or all of the NRI locations would improve GHG inventories and assessments. Establishment of a national soil-monitoring network along with additional long-term experiments that include measurements of nitrous oxide and methane fluxes are also needed to improve GHG estimation methods and reduce uncertainty.

A single “magic bullet” solution to the problem of reducing GHG emissions from fossil energy is unlikely, and biomass can play a useful role within a diverse portfolio of GHG reduction strategies. Practices that sequester carbon can maintain and increase soil organic matter, thereby improving soil quality and fertility, increasing water-holding capacity, and reducing erosion. More efficient use of nitrogen and other farm inputs is key to reducing GHG emissions and nutrient runoff, as well as to improving water quality in both surface and ground waters. Using digesters to capture methane from animal wastes can improve air quality and reduce undesirable odors. Consequently, policies should consider not only the GHG benefits but also associated co-benefits to arrive at the most effective solutions in a comprehensive framework. Further R&D is needed to improve the assessment of agriculture’s GHG contributions, to find better ways to manage lands to improve environmental quality, to design efficient policies to implement mitigation options, and to strengthen agriculture’s potential to contribute to producing renewable energy. Although challenges remain, agriculture has much to offer in helping to reduce GHGs in the atmosphere while at the same time improving the environment and the sustainability of agricultural resources.

About the Authors

Keith PaustianProfessorColorado State University

Keith Paustian is a Professor in the Department of Soil and Crop Sciences and a Senior Research Scientist at the Natural Resources Ecology Laboratory (NREL) at Colorado State University. He also serves on the Scientific Steering Committee for the US Carbon Cycle Science Program. Professor Paustian co-chaired the Council on Agricultural Science and Technology (CAST) taskforce on agriculture, climate change, and greenhouse gases; and served as Coordinating Lead Author for the Intergovernmental Panel on Climate Change’s (IPCC) volume on greenhouse gas inventory methods for agriculture, forestry and other land use.

Professor Paustian’s work includes assessment of greenhouse gas emissions and carbon sequestration for the annual US inventory, and development of accounting tools for farmers and ranchers to get credit under the US 1605B voluntary GHG reduction program. He and his colleagues have developed models for estimating GHG inventories in developing countries, models now being applied in 11 countries in Latin America, Africa and Asia. Professor Paustian’s areas of research include assessment of agricultural mitigation strategies, evaluation of environmental impacts of agricultural bioenergy production, soil organic matter dynamics, and agroecosystem ecology. Professor Paustian has written more than 100 journal articles and book chapters. He is currently working to develop effective mitigation strategies and better methods to measure and predict greenhouse gas (GHG) emissions from agriculture.

John M. AntleProfessorMontana State University

John M. Antle is a professor in the Department of Agricultural Economics and Economics at Montana State University. He holds a B.A. in economics and mathematics from Albion College, and a Ph.D. in economics from the University of Chicago. Prior to joining Montana State, he served as assistant and associate professor at the University of California, Davis; and as Gilbert White Fellow at Resources for the Future; senior staff economist for the President's Council of Economic Advisers; and member of the National Resource Council's Board on Agriculture. He was President of the American Agricultural Economics Association from 1999-2000. His current research focuses on the sustainability of agricultural systems, greenhouse gas mitigation and impacts of climate change in agriculture, and payments for ecosystem services in agriculture.

John SheehanSenior EngineerNational Renewable Energy Laboratory

John Sheehan holds a B.S. and an M.S. degree in chemical and biochemical engineering from the University of Pennsylvania and Lehigh University, respectively. He has served as an analyst and project manager at the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) since 1991. During his tenure at NREL, Sheehan has led research on the production and use of biodiesel and ethanol. In the past six years, Sheehan has authored groundbreaking life cycle assessments of biodiesel and ethanol technology, including a comprehensive life cycle evaluation of soybean-based biodiesel. His most recent study is an evaluation of the sustainability of use of agricultural residues as a feedstock for fuel ethanol production.

From 2002 to 2005, Mr. Sheehan led strategic planning activities for the Department of Energy’s Biomass Program. In October 2005, he joined the newly formed Strategic Energy Analysis Center at NREL, where he supports the Office of Planning, Budget and Analysis within DOE’s Office of Energy Efficiency and Renewable Energy.

Eldor A. PaulProfessorColorado State University

Eldor Paul is currently a Senior Research Scholar at the Natural Recourses Ecology Laboratory and Professor of Soil and Crop Sciences Colorado State University. Previously he held academic positions in Canada, and at the University of California, Berkeley, and Michigan State University.

Professor Paul has written over 260 articles and books, and his research interests include the ecology of soil biota, the role of nutrients such as nitrogen in plant growth, and the dynamics of carbon and nitrogen in sustainable agriculture and global change. His studies on the sequestration of carbon and nitrogen under afforestation and the sensitivity of different soil organic matter fractions to increased temperatures have led to a better understanding of the role of soils in climate change.

Foreword

The United States can capitalize on its substantial natural, institutional, and human resources to develop a strong, integrated, carbon sequestration program. The goals of a national sequestration strategy should include:

• Achieving actual increases in carbon stocks on its forest and agricultural lands,• Maintaining existing carbon stocks,• Producing more reliable estimates of changes in the absolute levels of these stocks, and• Developing the methods needed to allow policy-makers to evaluate the effectiveness of government-sponsored sequestration programs.

Given the variety of activities, land types, and ownership patterns involved, policy-makers will need to include several different components in designing a national strategy for U.S. forest and agricultural lands. They will also need to draw on a variety of approaches to implement this strategy. To maximize results, government should employ the full range of policy tools at its disposal, including: direct government provision of information and increasing carbon on federal lands, regulations, practice-based incentives, and results-based mechanisms. Table 10 provides a summary of the many policy tools available to the government for implementing a national carbon sequestration program. Given the multiplicity of policy tools and mechanisms available, it will be important to assure that future programs complement each other and are presented to potential participants in a lucid manner.

As a first step in increasing carbon sequestration, the government should examine how it can modify management practices on its extensive land holdings to emphasize carbon sequestration in a manner that is consistent with other land management objectives such as habitat protection, erosion control, and timber production. The most promising avenue involves reducing the risk of catastrophic loss of forests to wildfires (see Box 2, page 17). The regulatory approach, which may be particularly helpful in preserving existing forests and decreasing losses of forest carbon on private land, must be implemented through state governments where the power to directly control land-use and management is vested. Recent experience suggests that private-sector certification programs like the SFI that promote adoption of best management practices for sustainable forests can provide an important supplement to state and local regulations.

In the past, the federal government has predominantly employed practice-based incentives to influence private landowner decisions. This tendency is reflected in the 2002 Farm Bill, which contains a number of programs that provide cost-sharing incentives for practices that enhance carbon stocks on the lands where the practices are adopted. These programs generally serve multiple objectives that include soil, water, and habitat conservation in addition to carbon sequestration. The 2002 Farm Bill increased funding for these programs substantially. Practice-based incentive programs have two advantages as vehicles for promoting carbon sequestration. First, they operate through established networks of organizations to implement the policies. This reduces both the financial and political costs of shifting the focus of farm programs toward carbon sequestration. Second, practice-based programs avoid the transaction costs associated with measuring, monitoring, and tracking site-specific changes in carbon stocks. They also rely on a less intrusive monitoring process since it is only necessary to check for the existence and extent of the practice, rather than determining actual carbon stocks. Thus, practice-based programs are likely to be the most cost-effective, familiar, and feasible components of a larger national strategy to promote carbon sequestration, at least in the near term.

To fully exploit the potential of practice-based approaches, the U.S. government must assure continued funding for the relevant programs. Volatility in program funding will reduce the effectiveness of the government’s financial resources as landowners hesitate to make long-term commitments due to programmatic uncertainty. The government should also establish a high priority research initiative to evaluate the carbon benefits and cost-effectiveness of Farm Bill initiatives. In particular, the research should examine whether the programs are inducing actual changes in practices beyond what landowners would have done in the absence of incentives. As these programs mature, the government should revisit the question of whether practice-based programs should be expanded. For example, if the Conservation Reserve Program (CRP) proves particularly successful, the government should consider increasing its funding level and removing the current cap of 39.2 million acres.

An important element of a national strategy will be to explore whether it is possible to develop a credible program incorporating results-based incentives for individual carbon sequestration projects. Results-based approaches have the advantage of providing high-powered incentives for innovative approaches to carbon sequestration. However, they are also less familiar than the well-established practice-based approach, and will require both overcoming information challenges and choosing among several options.

The first step to developing a program that bases incentives on the results of individual projects is to establish a viable, cost-effective method of measuring impacts of practice and land-use changes in specific locations. The government appears to have started this process with its program to reassess and redesign the 1605(b) reporting guidelines. Whether those revisions will provide guidelines that are adequate for a cap-and-trade program remains to be seen. Ultimately guidelines will need to provide methods that address development of reference cases, potential leakage, permanence, and effects on other greenhouse gases in a manner that is sufficiently clear and comprehensive so that independent evaluators of a given project will arrive at essentially the same estimate of carbon benefits.

The second step to adding a results-based approach to the national strategy is to determine how incentives will be provided to project developers. For example, the government could provide subsidies or contracts where payments to landowners are proportional to the amount of carbon actually sequestered. Alternatively, if there are caps on emissions of greenhouse gases from industrial sources, project developers might receive credits issued by the government, but the payments to project developers would come from sales of these credits to industrial sources which would use the credits to assist in meeting emissions limits.

Once key stakeholders are satisfied that methods are available that accurately assess the carbon effects of individual projects, then a results-based program for promoting carbon sequestration on agricultural and forestlands should be included in the national carbon strategy. Doing so will unleash the creativity and innovation of U.S. landowners and lead to lower overall costs of achieving national climate goals.

Opportunities for augmenting carbon sequestration may be even greater, and costs may be substantially lower, in developing countries than in the United States. Therefore, U.S. policy-makers should consider expanding the scope of a sequestration strategy to provide incentives for projects outside U.S. borders. The U.S. government could also work directly with other governments to identify, promote, and fund new policies and practices that will protect and increase carbon stocks in those countries. The incentives could be largely the same as for domestic initiatives, and could include practice-based or results-based payments. However, the process for including results from efforts in other countries in the national report would be different. Whereas the impacts of domestic initiatives would be included automatically in the inventory of national carbon stocks compiled by the United States under the U.N. Framework Convention on Climate Change, inclusion of international accomplishments would not be automatic (see Figure 1). Sequestration benefits achieved in other countries would have to be measured separately. The sum of these impacts would then be added to the national change in domestic stocks to estimate the total change in global carbon stocks for which the United States might claim credit. If the national strategy includes incentives for sequestration accomplishments in other countries, it will become even more critical to develop consistent methods for program and project evaluation.

Executive Summary

Agricultural and forestlands can play a key role as part of a comprehensive strategy to slow the accumulation of greenhouse gas emissions in the atmosphere. Much of the public discussion about using these lands as part of an overall strategy to address climate change results from the beliefs that forest and agriculture land-use and management options will be relatively low cost, and that biomass can play an important role in reducing the use of fossil fuels. In the near term, these lands can be managed to increase the quantity of carbon stored in soils and plant matter, thereby reducing net emissions of the primary greenhouse gas, carbon dioxide. In many cases the changes in land-use management that increase carbon storage provide multiple benefits—such as erosion control, water quality protection, and improved wildlife habitat—that by themselves justify the new practices. Over longer time horizons, agricultural and forestlands can produce biomass-based substitutes for fossil fuels, thereby further reducing emissions.

This report examines the wide array of ways in which forest and agricultural lands can be managed to store or “sequester” carbon and reduce net emissions (hereafter we use the term “sequestration” for the process by which carbon is removed from the atmosphere by plants and stored in soils and trees). It discusses a range of policies and programs that would promote this objective and evaluates them in terms of their cost, environmental effectiveness, and other considerations. The results of this analysis suggest that, by carefully designing and implementing a large-scale forest and agricultural carbon sequestration strategy, the United States could substantially reduce its net carbon dioxide emissions. A successful strategy is likely to encompass a variety of initiatives at the national, state, and local levels, and to involve both government and private parties. No single approach will suffice.

Much of the infrastructure needed to increase carbon sequestration on agricultural and forestlands is already in place. To capitalize on sequestration opportunities, the federal government will need to address the full range of practices available for conserving existing carbon stocks and for promoting additional carbon uptake and storage on forest, crop, and grazing lands. A successful national strategy will also need to be responsive to the different types of land and landowners involved, to draw on the existing network of organizations, and include a variety of policy tools. On public lands, for example, government agencies, personnel, and resources can be directly deployed to pursue sequestration goals. On private land, the federal government has typically had to rely on incentives to influence land management and use. Regulatory approaches have been used on private forestlands, but have been carried out by states because of historically stiff political resistance to federal intervention in state powers to regulate land use.

There are three basic ways in which forest and agricultural lands can contribute to greenhouse gas reduction efforts: conversion of non-forestlands to forests, preserving and increasing carbon in existing forests and agricultural soils, and growing biomass to be used for energy. The costs and potential contributions associated with these three strategies vary widely. Conversion of an estimated 115 million acres of marginal agricultural lands in the United States to forests could sequester an additional 270 million metric tons (MMT) of carbon per year over a period of 100 years, at marginal costs in the rangeof $50 per metric ton of carbon ($45 per short ton1). 270 MMT of carbon stored in forests would offset nearly 20 percent of current emissions of carbon dioxide from U.S. combustion of fossil fuels. However, 115 million acres equals nearly 1/3 of currently cultivated cropland and, even though some of this conversion might be economic, conversion on this scale would require a significant federal effort and likely meet with resistance from agricultural business and rural communities. Initial national studies also suggest that up to 70 MMT could be sequestered annually on agricultural lands through modification of agricultural practices if moderate incentives were available (up to $50 per metric ton of carbon; $12.50 per metric ton CO2). In addition, with yield improvements and cost reductions in the technologies, it may be possible to offset as much as 9 to 24 percent of current emissions through use of biofuels produced at costs competitive with fossil fuels.

In a perfect world the most cost-effective practices—both source control and carbon sequestration—would be adopted first, with more costly approaches implemented successively as net emission reduction goals require. In practice, many approaches may be used simultaneously for a combination of practical, programmatic, and political reasons.

Carbon sequestration programs will not be implemented in a policy vacuum. New program design will need to take existing programs, regulations, and resources into consideration, including the large and sophisticated infrastructure that supplies the nation’s many forest and agriculture landowners with educational, technical, and financial support. A key asset that the government has at its disposal is the resourcefulness of many of these landowners. Given practical and political considerations, incentive-based approaches combined with technical assistance are the most effective and feasible policy tools the federal government will have to begin implementing a domestic carbon sequestration strategy. Moreover, the structure needed to deliver incentives for sequestration is already in place in the form of numerous programs contained in the 2002 Farm Bill, including the Conservation Security Program, the Conservation Reserve Program, the Environmental Quality Incentives Program, and the Wildlife Habitat Incentives Program.

The government has a great deal of experience with these programs, and, although each was designed to promote specific activities or land management practices, many of the targeted practices also sequester carbon. The practice-based approaches incorporated in these programs have received broad political support. Indeed, it may well be possible to achieve substantial gains in carbon conservation and sequestration simply by relying on existing institutions and programs. In many cases, greater gains could be achieved by increasing budgets and expanding programs. Thus, the federal government should provide substantial and sustained funding for Farm Bill programs that have been successful in promoting carbon sequestration.

An alternative to providing incentives for specific activities or management practices is to employ results-based approaches that provide rewards to landowners in proportion to the actual amount of additional carbon sequestration they achieve. This approach is foreshadowed in the domestic 1605(b) voluntary reporting program. It is also reflected in the Clean Development Mechanism of the Kyoto Protocol at the international level. The advantage of a results-based approach is that it encourages private landowners and project developers to develop innovative land-management practices that are adapted to local conditions. Rather than prescribing the sequestration practices for which the government will pay, the results-based approach frees the landowner to take whatever steps are appropriate to increase carbon stocks, and the reward is directly proportional to the accomplishment.

Incentives or rewards in a results-based program could take several forms. Two leading candidates are subsidy payments and carbon credits. A subsidy payment would take the form of an announced price—in dollars per ton—that the government would pay for carbon sequestration. This approach could be implemented by modifying existing government incentive-based programs. Alternatively, carbon credits could be established in conjunction with a “cap-and-trade” program. Large point sources such as power plants could be allowed to meet their caps, at least partially, by purchasing emission credits awarded for increasing sequestration on forest and agricultural lands. This approach would allow private landowners to receive income for sequestering carbon and would assist entities subject to emission caps to meet their targets at lower costs.

However, results-based approaches are less familiar to the agricultural and forest communities than existing programs that provide incentives for specific practices. Moreover, if credits are allocated to individual landowners under a results-based approach, the government will have to insure that there are adequate methods to provide consistent, reliable, quantified estimates of the greenhouse gas impacts of changes in land management and use. If the government can gain broad acceptance for a results-based approach, and develop the estimation protocols needed to gauge the appropriate rewards, it may be possible to unleash substantial creativity among the broad range of landowners in the United States in achieving increased carbon sequestration.

The government can employ all of the approaches described in this report—providing educational programs through its extension services, enhancing sequestration on government land, urging states to adopt regulations that encourage carbon sequestration, providing incentives for sequestration-promoting practices, and developing results-based programs—to achieve the greatest effect.

Conclusions

The United States can capitalize on its substantial natural, institutional, and human resources to develop a strong, integrated, carbon sequestration program. The goals of a national sequestration strategy should include:

• Achieving actual increases in carbon stocks on its forest and agricultural lands,• Maintaining existing carbon stocks,• Producing more reliable estimates of changes in the absolute levels of these stocks, and• Developing the methods needed to allow policy-makers to evaluate the effectiveness of government-sponsored sequestration programs.

Given the variety of activities, land types, and ownership patterns involved, policy-makers will need to include several different components in designing a national strategy for U.S. forest and agricultural lands. They will also need to draw on a variety of approaches to implement this strategy. To maximize results, government should employ the full range of policy tools at its disposal, including: direct government provision of information and increasing carbon on federal lands, regulations, practice-based incentives, and results-based mechanisms. Table 10 provides a summary of the many policy tools available to the government for implementing a national carbon sequestration program. Given the multiplicity of policy tools and mechanisms available, it will be important to assure that future programs complement each other and are presented to potential participants in a lucid manner.

As a first step in increasing carbon sequestration, the government should examine how it can modify management practices on its extensive land holdings to emphasize carbon sequestration in a manner that is consistent with other land management objectives such as habitat protection, erosion control, and timber production. The most promising avenue involves reducing the risk of catastrophic loss of forests to wildfires (see Box 2, page 17). The regulatory approach, which may be particularly helpful in preserving existing forests and decreasing losses of forest carbon on private land, must be implemented through state governments where the power to directly control land-use and management is vested. Recent experience suggests that private-sector certification programs like the SFI that promote adoption of best management practices for sustainable forests can provide an important supplement to state and local regulations.

In the past, the federal government has predominantly employed practice-based incentives to influence private landowner decisions. This tendency is reflected in the 2002 Farm Bill, which contains a number of programs that provide cost-sharing incentives for practices that enhance carbon stocks on the lands where the practices are adopted. These programs generally serve multiple objectives that include soil, water, and habitat conservation in addition to carbon sequestration. The 2002 Farm Bill increased funding for these programs substantially. Practice-based incentive programs have two advantages as vehicles for promoting carbon sequestration. First, they operate through established networks of organizations to implement the policies. This reduces both the financial and political costs of shifting the focus of farm programs toward carbon sequestration. Second, practice-based programs avoid the transaction costs associated with measuring, monitoring, and tracking site-specific changes in carbon stocks. They also rely on a less intrusive monitoring process since it is only necessary to check for the existence and extent of the practice, rather than determining actual carbon stocks. Thus, practice-based programs are likely to be the most cost-effective, familiar, and feasible components of a larger national strategy to promote carbon sequestration, at least in the near term.

To fully exploit the potential of practice-based approaches, the U.S. government must assure continued funding for the relevant programs. Volatility in program funding will reduce the effectiveness of the government’s financial resources as landowners hesitate to make long-term commitments due to programmatic uncertainty. The government should also establish a high priority research initiative to evaluate the carbon benefits and cost-effectiveness of Farm Bill initiatives. In particular, the research should examine whether the programs are inducing actual changes in practices beyond what landowners would have done in the absence of incentives. As these programs mature, the government should revisit the question of whether practice-based programs should be expanded. For example, if the Conservation Reserve Program (CRP) proves particularly successful, the government should consider increasing its funding level and removing the current cap of 39.2 million acres.

An important element of a national strategy will be to explore whether it is possible to develop a credible program incorporating results-based incentives for individual carbon sequestration projects. Results-based approaches have the advantage of providing high-powered incentives for innovative approaches to carbon sequestration. However, they are also less familiar than the well-established practice-based approach, and will require both overcoming information challenges and choosing among several options.

The first step to developing a program that bases incentives on the results of individual projects is to establish a viable, cost-effective method of measuring impacts of practice and land-use changes in specific locations. The government appears to have started this process with its program to reassess and redesign the 1605(b) reporting guidelines. Whether those revisions will provide guidelines that are adequate for a cap-and-trade program remains to be seen. Ultimately guidelines will need to provide methods that address development of reference cases, potential leakage, permanence, and effects on other greenhouse gases in a manner that is sufficiently clear and comprehensive so that independent evaluators of a given project will arrive at essentially the same estimate of carbon benefits.

The second step to adding a results-based approach to the national strategy is to determine how incentives will be provided to project developers. For example, the government could provide subsidies or contracts where payments to landowners are proportional to the amount of carbon actually sequestered. Alternatively, if there are caps on emissions of greenhouse gases from industrial sources, project developers might receive credits issued by the government, but the payments to project developers would come from sales of these credits to industrial sources which would use the credits to assist in meeting emissions limits.

Once key stakeholders are satisfied that methods are available that accurately assess the carbon effects of individual projects, then a results-based program for promoting carbon sequestration on agricultural and forestlands should be included in the national carbon strategy. Doing so will unleash the creativity and innovation of U.S. landowners and lead to lower overall costs of achieving national climate goals.

Opportunities for augmenting carbon sequestration may be even greater, and costs may be substantially lower, in developing countries than in the United States. Therefore, U.S. policy-makers should consider expanding the scope of a sequestration strategy to provide incentives for projects outside U.S. borders. The U.S. government could also work directly with other governments to identify, promote, and fund new policies and practices that will protect and increase carbon stocks in those countries. The incentives could be largely the same as for domestic initiatives, and could include practice-based or results-based payments. However, the process for including results from efforts in other countries in the national report would be different. Whereas the impacts of domestic initiatives would be included automatically in the inventory of national carbon stocks compiled by the United States under the U.N. Framework Convention on Climate Change, inclusion of international accomplishments would not be automatic (see Figure 1). Sequestration benefits achieved in other countries would have to be measured separately. The sum of these impacts would then be added to the national change in domestic stocks to estimate the total change in global carbon stocks for which the United States might claim credit. If the national strategy includes incentives for sequestration accomplishments in other countries, it will become even more critical to develop consistent methods for program and project evaluation.

Author Bios

Kenneth RichardsAssociate ProfessorSchool of Public and Environmental AffairsIndiana University

Kenneth Richards is Associate Professor at Indiana University’s School of Public and Environmental Affairs and Director of the IU at Oxford program. He holds a Ph.D. in Public Policy from the Wharton School and a J.D. from the Law School, University of Pennsylvania. He holds an MSCE in Urban and Regional Planning, a BSCE in Environmental Engineering from Northwestern University, and a BA in Botany and Chemistry from Duke University.

Prof. Richards has served as an economist with the Council of Economic Advisers, the USDA Economic Research Service, and the US Department of Energy's Pacific Northwest National Laboratory. He also was the national energy planner for the Cook Islands from 1984 to 1986. His research interests include climate change policy and environmental policy implementation and management.

R. Neil SampsonPresidentThe Sampson Group, Inc.

R. Neil Sampson holds a B.S. degree in Agriculture (Crops and Soils) from the University of Idaho and a Master’s in Public Administration from Harvard University. He is President of the Sampson Group, and a partner at Vision Forestry, LLC, a consulting firm that manages some 80,000 acres of sustainably-managed forests. Mr. Sampson also serves as a Research Scientist with the Yale School of Forestry and Environmental Studies, as Affiliate Professor in the Department of Forest Resources at the University of Idaho, and as technical Advisor to the Utility Forest Carbon Management Program of Edison Electric Institute, the International Carbon Mitigation Program of The Nature Conservancy, and the National Carbon Offset Coalition. He also serves as Executive Secretary of the External Review Panel to the Sustainable Forestry Initiative, sponsored by the American Forest & Paper Association.

He has authored two books on soil conservation, and edited many books on natural resource topics in addition to publishing over 100 scientific and popular articles on natural resource topics.

Prior to becoming President of the Sampson Group, Mr. Sampson’s career included service with the Soil Conservation Service (now Natural Resources Conservation Service), the National Association of Conservation Districts, and the American Forestry Association (now American Forests). In 2001, he was the F.K. Weyerhaeuser Visiting Fellow at the Yale School. He periodically serves as an adjunct professor at Virginia Tech’s Northern Virginia Campus.

Sandra Brown has a PhD in systems ecology from the Department of Environmental Engineering Sciences, University of Florida, a MS. in engineering science from the University of South Florida, and a BS in chemistry from the University of Nottingham, England. She has been employed as Senior Scientist in the Ecosystems Services Unit of Winrock International since 1998. Prior to joining Winrock, she was a Professor in the Department of Forestry at the University of Illinois in Champaign-Urbana. Dr. Brown has more than 25 years of experience in planning, developing, implementing, and managing government and private-sector-funded projects focusing on understanding the role of forests in the global carbon cycle and their present and potential future role in climate change and mitigation This work has resulted in more than 180 peer-reviewed publications, including five chapters in Intergovernmental Panel on Climate Change (IPCC) reports where was the a co-convening lead author.

Eileen Claussen, President, Pew Center on Global Climate Change

The vast lands of the United States offer significant opportunities to contribute to solving the problem of climate change. At costs well under $100 per ton of carbon, it may be possible to offset nearly 20 percent of current U.S. carbon dioxide emissions through reforesting marginal agricultural lands and restoring carbon to agricultural soils through practices such as no-till and improved crop rotations. Emissions can also be reduced by substituting biomass energy for fossil fuels and by reducing the intensity of wildfires through thinning and removing excess debris. However, for U.S. forest and agricultural lands to play a significant role in curbing climate change, a substantial national policy commitment will be necessary.

This report reviews the available resources and considers the range of policy approaches that would include U.S. forest and agricultural lands in a domestic policy. Kenneth Richards, Neil Sampson, and Sandra Brown identify four basic policy approaches and find that different approaches are suited to different lands. The approaches also vary with regard to who bears the implementation costs—the public at large or specific groups within it—and in expected magnitude of results. For these reasons, a successful forest and agricultural lands program will require some mix of the four approaches:

• Changing practices on public lands,• Land use regulations on privately owned forestlands,• Practice-based incentives for forest and agricultural lands, and• Results-based incentives for forest and agricultural lands.

They find that:

• U.S. Department of Agriculture programs that encourage best practices are familiar to and popular with farmers and forestland owners. As a result, we should evaluate those programs and expand the most effective ones.

• We need to do a better job of having landowners, rather than the government, be the ones to determine what information they need.

• Regulation of private land is primarily an opportunity for state and local government rather than the federal government.

• Results-based incentives, i.e., offering payments per ton of sequestered carbon, can encourage more cost-effective and innovative approaches, but will require development and agreement on consistent and reliable accounting methods.

So how should this inform policy-making? First, we should include land-based sequestration in federal legislation, including the Farm Bill and proposals that address climate change. Second, we should promote opportunities for farmers to move from traditional crop support to environmental and energy-security goals. Third, we should be managing large tracts of forestland sustainably, thus providing both for sequestration and habitat.

This report is being released with a companion report, The Role of Agriculture in Greenhouse Gas Mitigation. While this paper focuses on policy options, the companion report reviews the economic and technological opportunities available to farmers—including using cropland to produce biofuels—and estimates the greenhouse gas reductions that could be achieved. Taken together, these reports provide a comprehensive review of the role of U.S. forest and agricultural lands in a domestic climate change program. The Pew Center and the authors would like to express appreciation to Craig Cox, Debbie Reed and Brent Sohngen for reviewing and providing suggestions on an early draft of this report.

Executive Summary

Agricultural and forestlands can play a key role as part of a comprehensive strategy to slow the accumulation of greenhouse gas emissions in the atmosphere. Much of the public discussion about using these lands as part of an overall strategy to address climate change results from the beliefs that forest and agriculture land-use and management options will be relatively low cost, and that biomass can play an important role in reducing the use of fossil fuels. In the near term, these lands can be managed to increase the quantity of carbon stored in soils and plant matter, thereby reducing net emissions of the primary greenhouse gas, carbon dioxide. In many cases the changes in land-use management that increase carbon storage provide multiple benefits—such as erosion control, water quality protection, and improved wildlife habitat—that by themselves justify the new practices. Over longer time horizons, agricultural and forestlands can produce biomass-based substitutes for fossil fuels, thereby further reducing emissions.

This report examines the wide array of ways in which forest and agricultural lands can be managed to store or “sequester” carbon and reduce net emissions (hereafter we use the term “sequestration” for the process by which carbon is removed from the atmosphere by plants and stored in soils and trees). It discusses a range of policies and programs that would promote this objective and evaluates them in terms of their cost, environmental effectiveness, and other considerations. The results of this analysis suggest that, by carefully designing and implementing a large-scale forest and agricultural carbon sequestration strategy, the United States could substantially reduce its net carbon dioxide emissions. A successful strategy is likely to encompass a variety of initiatives at the national, state, and local levels, and to involve both government and private parties. No single approach will suffice.

Much of the infrastructure needed to increase carbon sequestration on agricultural and forestlands is already in place. To capitalize on sequestration opportunities, the federal government will need to address the full range of practices available for conserving existing carbon stocks and for promoting additional carbon uptake and storage on forest, crop, and grazing lands. A successful national strategy will also need to be responsive to the different types of land and landowners involved, to draw on the existing network of organizations, and include a variety of policy tools. On public lands, for example, government agencies, personnel, and resources can be directly deployed to pursue sequestration goals. On private land, the federal government has typically had to rely on incentives to influence land management and use. Regulatory approaches have been used on private forestlands, but have been carried out by states because of historically stiff political resistance to federal intervention in state powers to regulate land use.

There are three basic ways in which forest and agricultural lands can contribute to greenhouse gas reduction efforts: conversion of non-forestlands to forests, preserving and increasing carbon in existing forests and agricultural soils, and growing biomass to be used for energy. The costs and potential contributions associated with these three strategies vary widely. Conversion of an estimated 115 million acres of marginal agricultural lands in the United States to forests could sequester an additional 270 million metric tons (MMT) of carbon per year over a period of 100 years, at marginal costs in the rangeof $50 per metric ton of carbon ($45 per short ton1). 270 MMT of carbon stored in forests would offset nearly 20 percent of current emissions of carbon dioxide from U.S. combustion of fossil fuels. However, 115 million acres equals nearly 1/3 of currently cultivated cropland and, even though some of this conversion might be economic, conversion on this scale would require a significant federal effort and likely meet with resistance from agricultural business and rural communities. Initial national studies also suggest that up to 70 MMT could be sequestered annually on agricultural lands through modification of agricultural practices if moderate incentives were available (up to $50 per metric ton of carbon; $12.50 per metric ton CO2). In addition, with yield improvements and cost reductions in the technologies, it may be possible to offset as much as 9 to 24 percent of current emissions through use of biofuels produced at costs competitive with fossil fuels.

In a perfect world the most cost-effective practices—both source control and carbon sequestration—would be adopted first, with more costly approaches implemented successively as net emission reduction goals require. In practice, many approaches may be used simultaneously for a combination of practical, programmatic, and political reasons.

Carbon sequestration programs will not be implemented in a policy vacuum. New program design will need to take existing programs, regulations, and resources into consideration, including the large and sophisticated infrastructure that supplies the nation’s many forest and agriculture landowners with educational, technical, and financial support. A key asset that the government has at its disposal is the resourcefulness of many of these landowners. Given practical and political considerations, incentive-based approaches combined with technical assistance are the most effective and feasible policy tools the federal government will have to begin implementing a domestic carbon sequestration strategy. Moreover, the structure needed to deliver incentives for sequestration is already in place in the form of numerous programs contained in the 2002 Farm Bill, including the Conservation Security Program, the Conservation Reserve Program, the Environmental Quality Incentives Program, and the Wildlife Habitat Incentives Program.

The government has a great deal of experience with these programs, and, although each was designed to promote specific activities or land management practices, many of the targeted practices also sequester carbon. The practice-based approaches incorporated in these programs have received broad political support. Indeed, it may well be possible to achieve substantial gains in carbon conservation and sequestration simply by relying on existing institutions and programs. In many cases, greater gains could be achieved by increasing budgets and expanding programs. Thus, the federal government should provide substantial and sustained funding for Farm Bill programs that have been successful in promoting carbon sequestration.

An alternative to providing incentives for specific activities or management practices is to employ results-based approaches that provide rewards to landowners in proportion to the actual amount of additional carbon sequestration they achieve. This approach is foreshadowed in the domestic 1605(b) voluntary reporting program. It is also reflected in the Clean Development Mechanism of the Kyoto Protocol at the international level. The advantage of a results-based approach is that it encourages private landowners and project developers to develop innovative land-management practices that are adapted to local conditions. Rather than prescribing the sequestration practices for which the government will pay, the results-based approach frees the landowner to take whatever steps are appropriate to increase carbon stocks, and the reward is directly proportional to the accomplishment.

Incentives or rewards in a results-based program could take several forms. Two leading candidates are subsidy payments and carbon credits. A subsidy payment would take the form of an announced price—in dollars per ton—that the government would pay for carbon sequestration. This approach could be implemented by modifying existing government incentive-based programs. Alternatively, carbon credits could be established in conjunction with a “cap-and-trade” program. Large point sources such as power plants could be allowed to meet their caps, at least partially, by purchasing emission credits awarded for increasing sequestration on forest and agricultural lands. This approach would allow private landowners to receive income for sequestering carbon and would assist entities subject to emission caps to meet their targets at lower costs.

However, results-based approaches are less familiar to the agricultural and forest communities than existing programs that provide incentives for specific practices. Moreover, if credits are allocated to individual landowners under a results-based approach, the government will have to insure that there are adequate methods to provide consistent, reliable, quantified estimates of the greenhouse gas impacts of changes in land management and use. If the government can gain broad acceptance for a results-based approach, and develop the estimation protocols needed to gauge the appropriate rewards, it may be possible to unleash substantial creativity among the broad range of landowners in the United States in achieving increased carbon sequestration.

The government can employ all of the approaches described in this report—providing educational programs through its extension services, enhancing sequestration on government land, urging states to adopt regulations that encourage carbon sequestration, providing incentives for sequestration-promoting practices, and developing results-based programs—to achieve the greatest effect.

Foreword

In order to intelligently respond to climate change, we must first understand the likely consequences on our environment and health. This report, the first in a series of environmental impact reports, will explore anticipated effects of climate change on U.S. agriculture. Other reports in this series will assess what is known about the impact of climate change on weather and include analyses of its impact on water resources, coastal areas, human health, ecosystems, and forests. In evaluating the current state of scientific knowledge regarding the anticipated effects of climate change on U.S. agriculture, this report yields several key observations:

AGRICULTURAL SHIFTS ARE LIKELY.Climate change will result in agricultural shifts and changes across the United States. Given the requisite time and resources to adapt, the United States is likely to continue to be able to feed itself; however, there will clearly be regional winners and losers.

CURRENT PROJECTION SCOULD UNDERSTATE LONG-RANGE IMPACTS.If the rate of greenhouse gas emissions exceeds projected levels or if unanticipated or more frequent extreme events accompany this change, the outlook for the United States would likely worsen. The projections in this report, for example, are based on a doubling of carbon dioxide (CO2) in the atmosphere which could understate the severity of climate change impacts over the long-term.

GLOBAL IMPACTS COULD BE MORE PROFOUND.Some countries will experience more negative effects on agriculture associated with climate change. The situation will be particularly acute in developing nations that do not have the same resources as the United States to respond to the agricultural changes projected.

This report broadly outlines projected effects on U.S. agricultural regions. The complexity of the climate system itself and its relationship to agricultural resources make it difficult to project specific effects on individual states or communities. More research is needed to better understand this complex system and to incorporate relevant factors into future climate models and assessments. The report does, however, provide an objective foundation upon which to build and clearly demonstrates the impact climate change will have, both direct and indirect, on U.S. agricultural systems.

In addition to reporting on the environmental impacts of climate change, the Pew Center undertakes analyses on domestic and international policy matters and economics. The Center was established in 1998 by the Pew Charitable Trusts to bring a new, cooperative approach and critical scientific, economic and technological expertise to the global climate change debate.

A number of major corporations have taken a bold and historic step in joining the Center's Business Environmental Leadership Council. In doing so, they have accepted "the views of most scientists that enough is known about the science and environmental impacts of climate change for us to take actions to address its consequences." Understanding the potential environmental impacts of climate change, as this report illustrates, is an important step toward promoting informed action.

Executive Summary

This paper analyzes the current state of knowledge about the effects of climate change on U.S. food production and agricultural resources. The paper also considers regional changes in agricultural production, including distributional impacts.

The linkages between agriculture and climate are pronounced, often complex, and not always well understood. Temperature increases can have both positive and negative effects on crop yields, with the difference depending in part on location and on the magnitude of the increase. Crop yields in the northern United States and Canada may increase, but yields in the already warm, low-latitude regions of the southern United States are likely to decline. Evidence also suggests positive crop yield effects for mild to moderate temperature increases such as 2°C to 3°C (3.6°F to 5.4°F). However, once average global temperatures rise beyond about 4°C (7.2°F), yields begin to fall. Increases in precipitation level, timing, and variability may benefit semi-arid and other water-short areas by increasing soil moisture, but could aggravate problems in regions with excess water. Although most climate models predict precipitation increases, some regions will experience decreased precipitation, which could exacerbate water shortages and droughts. Higher carbon dioxide (CO2) levels in controlled experiments increase crop growth and decrease water use. However, these experiments often have demonstrated a more positive response than observed under actual field conditions.

Agricultural systems are most sensitive to extreme climatic events such as floods, wind storms, and droughts, and to seasonal variability such as periods of frost, cold temperatures, and changing rainfall patterns. Climate change could alter the frequency and magnitude of extreme events and could change seasonal patterns in both favorable and unfavorable ways, depending on regional conditions. Increases in rainfall intensity pose a threat to agriculture and the environment because heavy rainfall is primarily responsible for soil erosion, leaching of agricultural chemicals, and run off that carries livestock waste and nutrients into water bodies. Currently available climate forecasts cannot resolve how extreme events and variability will change; however, both are potential risks to agriculture. The rate of change is also uncertain. Adjustment costs are likely to be higher with greater rates of change.

Agricultural systems are managed. Farmers have a number of adaptation options open to them, such as changing planting and harvest dates, rotating crops, selecting crops and crop varieties for cultivation, consuming water for irrigation, using fertilizers, and choosing tillage practices. These adaptation strategies can lessen potential yield losses from climate change and improve yields in regions where climate change has beneficial effects. At the market level, price and other changes can signal further opportunities to adapt as farmers make decisions about land use and which crops to grow. Thus, patterns of food production respond not only to biophysical changes in crop and livestock productivity brought about by climate change or technological change, but also to changes in agricultural management practices, crop and livestock prices, the cost and availability of inputs, and government policies. In the longer term, adaptations include the development and use of new crop varieties that offer advantages under changed climates, or investments in new irrigation infrastructure as insurance against potentially less reliable rainfall. The extent to which opportunities for adaptation are realized depends upon a variety of factors such as information flow, access to capital, and the flexibility of government programs and policies.

Climate change can also have a number of negative indirect effects on agro-environmental systems effects that have been largely ignored in climate change assessments. These indirect effects include changes in the incidence and distribution of pests and pathogens, increased rates of soil erosion and degradation, and increased tropospheric ozone levels from rising temperatures. Regional shifts in crop production and expansion of irrigated acreage may stress environmental and natural resources, including water quantity and quality, wetlands, soil, fish, and wildlife.

The focus of this paper is on the impacts of climate change on agriculture. However, agriculture is also a potential source of greenhouse gas (GHG) emissions, and it can play an important role in mitigating these emissions. Methane from rice paddies and livestock, nitrous oxide (N2O) from cultivated soils and feedlots, and CO2 from the cultivation of virgin agricultural lands and intensive production methods contribute to global warming. Changes in management can reduce emissions from these sources. Agriculture can reduce atmospheric CO2 through tree-planting and similar programs that sequester significant amounts of carbon and through increased planting of biofuel crops that could replace fossil fuels.

The following describes the current understanding regarding the potential impacts of climate change on U.S. agriculture:

CROPS AND LIVESTOCK ARE SENSITIVE TO CLIMATE CHANGES IN BOTH POSITIVE AND NEGATIVE WAYS. Understanding the direct biophysical and economic responses to these changes is complicated and requires more research. In addition, indirect effects - such as changes in pests and water quality and changes in extreme climate events - are not well understood.

THE EMERGING CONSENSUS FROM MODELING STUDIES IS THAT THE NET EFFECTS ON U.S. AGRICULTURE ASSOCIATED WITH ADOUBLING OF CO2 MAY BE SMALL; HOWEVER, REGIONAL CHANGES MAY BE SIGNIFICANT (I.E., THERE WILL BE SOME REGIONS THAT GAIN AND OTHERS THAT LOSE). Beyond a doubling of CO2 , the negative effects are more pronounced both in the United States and globally.

THE IMPACT OF CLIMATE CHANGE ON U.S. AGRICULTURE IS MIXED. Climate change is not expected to threaten the ability of the United States to produce enough food to feed itself through the next century; however, regional patterns of production are likely to change. Regions such as the Northern Great Plains and Great Lakes may have increased productivity while the Southern Plains, Delta states, and possibly the Southeast and portions of the Corn Belt could see agricultural productivity fall. However, the form and pattern of change are uncertain because changes in regional climate cannot be predicted with a high degree of confidence.

CONSIDERATION OF ADAPTATION AND HUMAN RESPONSE IS CRITICAL TO THE ACCURATE AND CREDIBLE ASSESSMENT OF CLIMATE CHANGE IMPACTS.However, because of the long time horizons involved in climate change assessments and uncertainties concerning the rate at which climate will change, it is difficult to predict accurately what adaptations people will make. This is particularly challenging since adaptations are influenced by many factors, including government policy, prices, technology research and development, and agricultural extension services.

BETTER CLIMATE CHANGE FORECASTS ARE KEY TO IMPROVE DASSESSMENTS OF THE IMPACTS OF CLIMATE CHANGE. In the meantime, farmers and the agricultural community must consider strategies that are economically and environmentally viable in the face of uncertainty about the course of climate change.

AGRICULTURE IS A SECTOR THAT CAN ADAPT, BUT THERE ARE SOME FACTORS NOT INCLUDED IN ASSESSMENTS THAT COULD CHANGE THIS CONCLUSION.Changes in the incidence and severity of agricultural pests, diseases, soil erosion, and tropospheric ozone levels, as well as changes in extreme events such as droughts and floods, are largely unmeasured or uncertain and have not been incorporated into estimates of impacts. These omitted effects could result in a very different assessment of the true impacts of climate change on agriculture. If the rate or magnitude of climate change is much greater than anticipated, adaptation could be more difficult and impacts could be greater than currently expected.Overall, the consensus of economic assessments is that global climate change of the magnitudes currently being discussed by the Intergovernmental Panel on Climate Change (IPCC) and other organizations (i.e., +0.8°C to +4.5°C or +1.4°F to +8.1°F) could result in some lowering of global production but will have only a small overall effect on U.S. agriculture and its ability to provide sufficient food and fiber to both domestic and global customers over the next 100 years. However, distributional effects within the United States can be significant because consumers, producers, and local economies will gain in some regions and lose in others.

Warming beyond that reflected in current studies (i.e., associated with a continued rise in CO2 beyond the doubling that has been commonly investigated) is expected to impose greater costs, decreasing agricultural production in most areas of the United States and substantially limiting global production. This reinforces the need to determine the magnitude and rate of warming that may accompany the CO2 and greenhouse gas build-up currently underway in the atmosphere.

About the Authors

Richard M. AdamsOregon State University, Corvallis, OR

Richard M. Adams received his Ph.D. in Agricultural Economics from the University of California, Davis, in 1975. He is currently a professor of Agricultural and Resource Economics at Oregon State University, a position he has held since 1983. His research interests include the economic analysis of resource and environmental issues, with emphasis on the consequences of environmental change. Professor Adams has served on numerous governmental advisory and research committees dealing with environmental issues. He has published over 160 journal articles, book chapters and research reports, including 20 on the effects of climate change on agriculture and agricultural resources. He has served on the editorial boards of five journals and w as editor of the American Journal of Agricultural Economics from 1992 to 1994.

Brian H. HurdStratus Consulting Inc., Boulder, CO

Brian H. Hurd is a Senior Associate in the climate change group at Stratus Consulting, a Boulder-based environment and energy research firm. He received his Ph.D. in agricultural economics from the University of California, Davis in 1992, where he analyzed technology changes in production agriculture. His passion for interdisciplinary research and for contributing to public decision-making regarding natural resources has led to his current focus on climate change. He has developed regional and national models of water resource impacts, analyzed land use changes in forestry and agriculture, and investigated adaptation and mitigation strategies, while serving a variety of public- and private-sector clients such as U.S. EPA, U.S. Department of Energy, National Science Foundation, National Institute for Global Environmental Change, and the Electric Power Research Institute.

John ReillyMassachusetts Institute of Technology, Cambridge, MA

Dr. Reilly is the Associate Director for Research in the Joint Program on the Science and Policy of Global Change at the Massachusetts Institute of Technology. He spent 12 years with the Economic Research Service of USDA, most recently as the Acting Director and Deputy Director for Research of the Resource Economics Division. He has been a scientist with Battelle's Pacific Northwest National Laboratory and with the Institute for Energy Analysis, Oak Ridge Associated Universities. He received his Ph.D. in economics from the University of Pennsylvania in 1983 and holds a BS in economics and political science from the University of Wisconsin. He has conducted research on the economics of climate change for 19 years. He was a principal author for the Intergovernmental Panel on Climate Change's Second Assessment Report and has served on many Federal government and international committees on climate change and agricultural research.